It seems the Yen May Fall as Markets Cheer PMI Data! I mean, it almost feels like a real estate bubble is developing in China! Does this mean that the US dollar will now fall?
It is the opposite – The Yuan is now weaker than the US Dollar, and that means that the Yuan can take advantage of the other currencies weakness. But what is the short term PMI?
Just read the chart of the “Short Term Strength Index” (the indicator) for last month. So let me explain what the indicator is, and how it is used. What the Short Term Strength Index is really about is this:
When the US economy is stronger than the global economies, then I think the indicator would be more bullish than when it is weaker. And it has been pretty bullish the last few months when the US is growing more.
In other words, the Short Term Strength Index is really trying to tell us how weak the global economy is relative to the US Economy. For every two weeks the US grows, there is one or two weeks where the global economy isn’t growing at all. So it is important to understand how much stronger the US economy is compared to the global economy.
With a current strength index that shows the US Economy increasing in strength, I am sure we will see another two weeks of bullish sentiment coming from the Short Term Strength Index. Because I really do believe that a US recovery is going to be strong. And I don’t think that other countries are going to come out of a recession fast.
Let me explain one more time what the Short Term Strength Index is for the next few weeks. One thing that it is going to be looking at is the US Dollar vs. the Yen, which is one of the largest currencies in the world.
Of course, when the US Dollar is stronger versus the Yen, then the Short Term Strength Index will be doing well. When the US Dollar falls below the Yen it will be negative. That is not exactly a great sign.
If the US Dollar falls below the Japanese Yen, then the Short Term Strength Index will likely be negative. We don’t want the US Dollar to fall below the Yen because then we will see deflation and a stronger US Dollar!
A lot of people have a fear about the Yen falling. It’s one of the largest currencies in the world. So you can see that there is a little bit of speculation about the future of the Yuan, and why it may fall in price.
Remember, I said this morning on CNBC that I don’t think the Yuan is going to fall all the way to parity with the US Dollar, and there is some indication that the Yuan may not fall as far as I think people expect. Please consider all this.